It is hard to see the strategy that Yanis Varoufakis believes he is following. Let me say at the start that I think he is right on the morality of calling for a reduction in Greece’s debt burden, partly the reflection of past mistakes in banks’ lending for which Greek taxpayers are now being asked to pay. But the new Greek government’s tactic of asking for more money while declining to reveal a plan for reforming the economy’s old problems is an offence to those small (and poor) members of the Eurozone which have had to make such painful changes. The grandstanding of Greece’s “rock star” finance minister, wishing for fundamental changes in the nature of the zone itself that are never going to happen, as he did in Paris last week at the annual gathering of the Institute for New Economic Thinking (INET), sheds little helpful light.
As far as the immediate flurry of deadlines goes, Greece is managing to jump through the hoops. It seems that Athens can probably scrape together the resources for this week’s payment to the International Monetary Fund (€420 million tranche due on Wednesday, April 14). The government managed to produce the €458m that it paid the IMF last week albeit by raiding the cash reserves of public agencies and utilities—money that they presumably need to pay their suppliers. That can’t go on for long without bringing those agencies to a halt.
But the government, headed by Prime Minister Alexis Tsipras and his Syriza party, which came to power vowing to renegotiate the €240bn bailout package, is not getting far in its attempts to do just that, and the problem is not only the rigidity of Greece’s negotiating opponents. Last week’s meeting of finance ministers did not give Varoufakis the response he wanted; along with a rebuff for acting “like a taxi driver” in asking for money, he was told to produce a list of reforms by the next key deadline, April 24, when Greece is due to receive the final €7.2bn tranche of its bailout package.
It matters that he does, and not just to secure that cash. Greece will need that money to pay public sector salaries and pensions, which cost €2.4bn a month, and another €950m for the IMF in May.
Further reading:Yanis Varoufakis: Germany’s nemesis
World Thinkers 2015: Yanis Varoufakis
Nobel laureate Joseph Stiglitz, “in conversation” with Varoufakis on a panel in Paris, complimented him (and implicitly criticised the bailout package) for recognising that severe cuts will cause the economy to contract and that Greece had no prospect of growing its way out of its predicament. On this, Stiglitz (and Varoufakis) have much support internationally; indeed, key sessions of the INET gathering were devoted to that argument. INET, a New York philanthropic foundation which sponsored the conference, has directed itself in particular to looking at the lessons for economics from the 2008 crisis and the recession that followed.
However, the Greek government has not so far produced a schedule of reforms that acknowledge how badly Greece needs to change its economy in return for any such concessions. Varoufakis in Paris declared that “we can’t raise VAT further, it is already in 23 per cent;” he added, to laughs, “of course, we don’t collect it, but that’s another problem.” But that airy charm dodges the central point—Greece needs to turn itself into an economy that can actually collect its taxes, a capacity that it has neglected to develop (and a failing on which the European Commission has commented too little). He volunteered that “a third of jobs are in the black economy” and that this “puts employers who do things by the book at a disadvantage”. Fine, an accurate piece of description—but these are among the changes that the IMF, the ECB and the EU are asking Greece to make. Yet the finance minister says little about how his government will go about correcting this. It is all very well to say that “the word reform is in Greece what the word ‘democracy’ is in Iraq—people run for cover, thinking ‘they will cut my pensions’”. But behind the soundbite (again, playing to the laughter of his so-far indulgent audiences) is an evasion of the point that Greece could not afford the public sector pensions that it had, over decades, granted.
Varoufakis is prone, as he did in Paris, to use his immense fluency to retreat to the broad picture. He mused last week on the conditions that it would take to bring about a “United States of Europe”, while acknowledging that people, in Greece or Germany, were distinctly cool on the idea. Greece’s new “negotiating” tactic—a demand that Germany pay it war reparations of €279bn (a sum that would cancel out all the Eurozone debt) was guaranteed to infuriate Germans while having essentially no chance of success (even though some lawyers acknowledge it could have some standing in international law). Nor has Tsipras explained why Greece should be let off without such structural reforms when other small states were forced to make them.
Stiglitz complimented Varoufakis at the end by saying: “I wish all finance ministers had your economic literacy—no, what you have is beyond economic literacy. It is economic mastery.” If only. Varoufakis and his government do indeed have several strong points in their case, not least the moral one. But they spoil them by pouring buckets of words without real answers onto the problem, playing to the gallery to avoid facing their challengers over the negotiating table.
